[October 07, 2008]

AtheroGenics Shares Belly-Flop as Company Goes Belly up

(BioWorld Today Via Acquire Media NewsEdge) Shares of AtheroGenics Inc. shed nearly half of their value, 42 percent, Tuesday after the company consented to the involuntary Chapter 7 bankruptcy petition filed by several of its investors last month.

The stock (NASDAQ:AGIX), which two years ago traded above $10, fell 10 cents, to close at 14 cents Tuesday.

AtheroGenics' troubles began in March 2007, when lead drug AGI-1067 failed to outperform placebo in a Phase III trial for atherosclerosis. More bad news came the following month as partner AstraZeneca plc dropped development of the drug. (See BioWorld Today, March 20, 2007, and April 24, 2007.)

Undeterred, AtheroGenics restructured and decided to repurpose AGI-1067 for diabetes, kicking off a new Phase III trial and announcing its intention to find a new partner. But the company's shares continued to fall as the full data from its failed atherosclerosis study came to light and its new diabetes trial faced tolerability issues at the highest dose. (See BioWorld Today, June 1, 2007, and Aug. 24, 2007.)

This August, AtheroGenics finally got its reward: AGI-1067 significantly reduced glucose levels in the Phase III diabetes trial. The company's stock jumped more than 50 percent, but by then, the shares had fallen so far that even a 50 percent hike couldn't bring the closing price above $1. (See BioWorld Today, Aug. 1, 2008.)

Meanwhile, AtheroGenics had racked up a fair amount of debt. The company issued $100 million worth of 4.5 percent convertible notes due in 2008, but later restructured or redeemed $69.5 million worth, leaving an unpaid principal balance of $30.5 million. The restructuring created $71.9 million worth of 4.5 percent convertible notes due in 2011.

Separately, AtheroGenics issued $200 million worth of 1.5 percent convertible notes due in 2012, bringing its outstanding note total to $302 million.

Last month, the $30.5 million remaining balance on the 2008 notes came due. Although AtheroGenics had $66.2 million in cash, equivalents and short-term investments as of June 30, the company chose to default on its notes and save its cash for the confirmatory Phase III trial of AGI-1067 in diabetes. (See BioWorld Today, Sept. 3, 2008.)

CNH Partners LLC, Tamalpais Asset Management LP, Tang Capital Partners LP and Zazove Associates LLC - which together hold about 96 percent of the 2008 notes - urged AtheroGenics to restructure its debt rather than default, but the company declined.

AtheroGenics President and CEO Russell Medford said in an email interview that the decision to default rather than use the cash for debt repayment came after the company had "evaluated all its alternatives."

The default triggered a cross-default on the additional $271.5 million worth of notes outstanding.

The note holders filed a petition for involuntary Chapter 7 bankruptcy. Tuesday, AtheroGenics said it had consented and filed to convert the case to Chapter 11 bankruptcy. The company plans to sell itself and/or its assets, with the help of Merriman Curhan Ford and Co., and return the proceeds to its stakeholders and creditors. Medford said AtheroGenics concluded that the "sale of the company, or its assets, was in the best overall interest of its various stakeholders." He declined to answer additional questions.

Two weeks ago, AtheroGenics reduced its headcount by 40 percent. The Atlanta-based company, which was founded in 1994, had 30 remaining employees. n

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